Do you need life insurance?
Do you need life insurance? Most people need life insurance for one reason or another, however when you break it down, people need life insurance for one of two reasons. First is to create an estate in the event you did not live long enough to do it yourself. And the second reason is to maintain your estate, in the event you have already created your own.
How much insurance you should own (after paying debt, mortgage, and taxes) will depend on your own set of values. How much income you wish to supplement, for how long, plus any legacy you wish to leave behind. The simple calculator can be used to determine this for you.
Life Insurance is one of the few financial products that experts agree will provide you with tax benefits. Since money is allowed to grow tax deferred inside a permanent life insurance policy, you can have your cake and eat it to. A permanent policy can provide you liquidity (access to your cash), tax deferred growth, growing insurance values, and an alternative retirement fund.
In addition, if owned by a personal corporation, the insurance can be paid for with after corporate taxed dollars rather then after personal tax. The compounding effect of this is staggering.
The main types of insurance:
There are thwo main types of life insurance:
By clicking the links above you will find information on each type of life insurance, as well as a Life Insurance Calculator and a chart comparing the three types of insurance.
Term Life Insurance
Term insurance is referred to as temporary insurance. Term Insurance is designed to cover an insurance need which will not last forever. Generally term insurance is sold in "terms" of 10 or 20 years. This type of coverage can renew for successive terms however the premium increases dramatically. Term insurance can often be "converted" or changed into a permanent policy."
- What percentage of your current income do you want to leave your survivors and for how many years?
- Expected rate of inflation?
- Expenses such as a mortgage, car payments, and children's education?
- Rate of return on the benefits that are invested by your survivors?
Permanent Life Insurance
Permanent Life Insurance is designed to be in force for long periods of time. In fact a permanent policy is often guaranteed to remain in force until age 100. This type of coverage is valuable when planning for long term needs such as retirement and estate planning issues. Permanent policy come in many different forms and as such fulfill different needs. For example if you wish to own coverage for your entire life yet you wish to stop paying premiums in 20 years, you might consider a 20 pay life policy. This policy would create cash values which are accessible to you for income purposes later in life. On the other hand a Universal life policy is similar however the investment risk lays with the policy owner rather then the insurance company. Proper planning and advice can help you make an informed decision on which type of policy is right for your position and objectives.
Additional advantages of Permanent coverage are:
- Life long coverage
- Lowest net cost of insurance
- Canada Revenue Agency allows cash to grow tax sheltered
- Cash values provide liquidity (which is lacking in most portfolios)
- Enhances Retirement savings
- Provides security for generational planning